With the National Party-led coalition government is still in its infancy, insurance professionals are starting to look at the group’s pre-election promises and how they might affect the broking profession.

National and ACT campaigned to cut red tape and reduce the compliance burden on NZ businesses during the election. With this as their general approach to the financial service industry, many are watching to see how this translates into action, and what effect it will have on the Financial Markets (Conduct of Institutions) Amendment Act 2022 (CoFI). 

As recently as August, at the Financial Services Council conference, National made it clear that CoFI would be up for repeal, along with other legislation that impacts the wider financial services sector. Pre-election, this was a strong signal to the industry around their intention to support the markets’ ability to regulate itself, rather than through legislation.

With National unable to govern alone, it remains to be seen what influence other parties will have on their regulatory plans, including the proposed CoFI repeal. 

With Winston Peters and New Zealand First playing a key role in this government, National’s regulatory changes could be watered down. Some believe New Zealand First could modify some of National and ACT’s aims around regulation. 

Unlike Luxon and Seymour, Peters supports inquiries into the financial markets and has gone so far as to indicate his support of ‘Monopoly Investigations’ for key industries in his party’s pre-election pledge. 

While this doesn’t reference CoFI directly It is fair to assume that NZ First may not hold the same sentiments around the self-regulation of financial markets and services. However, even with NZ First in the coalition, the change of government signifies that some alterations or even repeal of CoFI is now a real possibility. 

Like other financial services, the general insurance industry and brokers have been speculating what this will mean for them. 

Critics of CoFI have complained that it increases regulatory costs, which then impacts consumers through increased costs. As everyone has seen, the local market has faced significant cost rises in recent years due to other industry pressures around major events and the flow-on effects of the global cost of living crisis. 

Others in the industry support the main principles of CoFI, and believe some regulation needs to be standardised across the industry through legislation. 

They see the protection of consumers as encouraging for the insurance business and believe it could have a positive impact through improved consumer relationships and products. Supporters see the potential consumer benefits, such as a greater focus on outcomes, increased consumer confidence and relationships, and better business for brokers. 

Both brokers and industry organisations have been adjusting processes and examining internal procedures ahead of CoFI for some time, with many having plans up to 2025, when it will be in full effect.

Although the principles of the legislation are the same for everyone in terms of impact, on a practical level, what this means varies considerably. It is an Act that touches across many industries and transactions in financial services, not only the general insurance industry. 

“It was always going to be a challenge for the Act to incorporate and balance the vast difference between products and services within the financial services sector”, says Sam Kerr, Financial Advisor from ShareNZ. 

Kerr explains that regulators involved in drafting the legislation have tried to understand the complexities of covering such a wide range of services and products that are governed by CoFI.

“They’ve worked really hard to consult with everyone and really try and understand the industry and balance that with protecting consumers. I think you can see that by the development of the draft legislation too,”, explained Kerr. 

“A lot of consultation happened with this legislation. You can see it with the progression of the drafts and adjustments that have been made,” reiterated Kerr. 

However, he acknowledged that everyone across the industry would be at “different places” around the impacts and what they mean for them. 

This could explain why different parts of the financial services industry have different takes on the legislation and what it means for risk exposure. Some may face higher regulatory costs than others as they manage new compliance aspects. Others have already been operating within similar requirements, so the changes have not been as costly. 

CoFI has the potential to become overreach in some circumstances, which could result in poor outcomes for those it has been designed to protect. This overreach or unintended consequence is what some feel happened for lending markets when the Credit Contract and Consumer Finance Act 2003 (CCCFA) came into effect in December 2021. There are concerns that some unintended consequences around CoFI have not been accounted for.

However, Kerr encouraged brokers to look at the bigger picture and the intended needs that CoFI is trying to meet across the financial sector.

“It should never be seen as a bad thing to put consumer protection at the centre of business interactions”, said Kerr, adding the legislation also has some practical implications, such as alignment with other regulatory changes and adjustments that reflect the way business has changed with technology advancements in our modern business environment. 

Kerr says the industry should be cautious when calling for a wholesale repeal of CoFI. 

“Don’t throw the baby out with the bathwater and push to repeal the whole thing when it does have advantages for the industry,” said Kerr.

While against a complete repeal, he understands that some have felt deeper impacts than others.

“A lot of positive work has already been undertaken across organisations in response to the Act, which helps facilitate high standards and professionalism across the industry in general,” Kerr added. “Consumer protection is something that everyone in the industry should support.”

While hard work has gone into ensuring the legislation works as intended, how it will work in practice for industry participants and consumers remains to be seen.

This uncertainty, and the long-standing perception of regulation as red tape, could mean that National repeals legislation the industry has already committed to implementing, despite its pathway to upholding better outcomes across product and service distribution.

This may be challenging for brokers who have already adapted to understanding the impacts of being an intermediary and where their responsibilities for fair conduct lie. 

While it’s too early to say how the new coalition will approach financial services regulation, National has clearly indicated its intention to make changes. Exactly how far they will go will depend on the appetite of their coalition partners and the wider industry. For now, brokers are in wait-and-see mode as the uncertainty continues.

December 2023